7 Steps To Reduce Your Debt

Having a high debt burden is financially stressful. It can lead to low credit scores, struggles to keep up with bill payments, hamper your savings and prevent you from taking future loans. Debt can be in the form of credit cards, personal loans, and or home loans.

In India, most of the burden is faced due to home loans as the rate of interest has been high. Additionally, if you use a credit card excessively, even that can add more burden to your existing woes.

If you are one of those who have high debt, here are a few simple steps to help you reduce it.

1. Understand your debt

Skim and review all your loan statements and credit card bills to comprehensively understand the status of your debt you owe each month as well as how much interest you are paying.

Check if your monthly debt obligations and necessary expenses are lower than your income. If you cannot afford to pay your essential bills, you need to negotiate with lenders or find ways to secure more income.

2. Create a repayment strategy

Instead of just putting extra money toward any of your debt, think about which debt you want to pay down first. Targeting high-interest debt first will save you the most money in the long run. However, some people find tackling the smallest amount of debt first works better for them because it keeps them motivated. Figure out what will work for you best.

3. Be well aware of your credit history

Be watchful of your credit score to check your rating and review your credit report for inaccuracies. Your credit report can help you understand how your debt is impacting your credit score. You can see if you have a significant number of late payments or if you have a high credit utilization ratio, meaning you use a high amount of the debt available to you.

4. Make adjustments to debt

If your credit rating allows for it, try to get a larger, lower-interest loan and consolidate your debts into this loan. This can speed up the process of paying off your debt by minimizing the interest. You may consider a balance transfer offer of 0% interest from one of your credit cards.

This way, you can get a grace period that could last anywhere from six to 18 months depending on the offer. Be aware that if you don't pay the balance off in full before the offer term ends, you will pay the credit card's interest rate on the balance.

5. Increase payments

Whenever possible, double the number of payments you make to your debt, especially for high-interest debt. Paying more than the minimum can speed up the time it takes to get out of debt. By increasing your payment amount, you will be increasing the overall rate at which your debt declines and reducing the total interest you pay.

6. Reduce expenses

Cutting back on unnecessary expenses is a key part of getting out of debt. Review your regular expenses and identify which are necessary, such as food, housing, and utilities, and which are unnecessary, such as entertainment or clothing. Reducing your unnecessary expenses can give you extra money to put toward getting out of debt.

7. Seek a professional advisor for assistance

Meeting with a proficient financial advisor can help you understand all your options for getting out of debt. Professional advisors can guide you through the best strategies for your particular situation. A credit counselor may also provide support when you meet with your creditors. However, be wary of credit specialists that charge high fees.